The industrial real estate market turned a corner in 2011 in Inland Southern California, and there are strong signals the arrows are still pointing northward in the area’s eastern tier, thanks to renewed economic activity and a shortage of available space.
The latter part of that equation almost sounds like an echo from five years ago. There is not much available space to build a big-box distribution center near Ontario international Airport, considered the best location for a logistics facility, and there are few vacancies among existing buildings.
That means that developers are going to look east, much like they did around 2004 and 2005, when massive distribution centers were built in places such as Perris, Moreno Valley, San Bernardino and Riverside, developers say.
An end-of year report from commercial real estate company Lee & Associates found a 7.5 percent vacancy rate for industrial properties in the I-215 corridor, mostly in Riverside, Moreno Valley, Perris and surrounding areas. The vacancy rate had been more than 8 percent since 2006.
That means that 2012 could be a year to watch. If developers perceive there’s a demand for space, they could be ready to build new properties.
Three distribution centers near the city line that separates Moreno Valley and Perris are currently under construction and close to being completed. All are larger than 600,000 square feet, and all three are being built on spec, meaning they don’t have tenants yet.
“Those three big ones are like the canaries in the coal mine,” said Rick John, senior vice president of Daum Commercial Real Estate’s Ontario office. “We’re going to be watching those, and if all three are leased it’ll spring some new construction.”
Warehouse development has some detractors because it increases truck traffic, but it is probably the strongest segment of the job market in Riverside and San Bernardino counties. About 5,500 jobs related to the movement of goods were added in the last 12 months, and the growth rate of close to 5 percent is almost three times as much as the growth in all jobs, according to state data.
John Bower, the executive vice president in charge of the Inland offices of NAI Capital, said the prime locations near Ontario “are pretty well picked over.”
That means developers have no choice but to look east, and not only for the large distribution centers. Some investors are looking at facilities under 150,000 square feet, Bower said.
“We’re starting to get the next generation of developers wanting to replenish the supply in the mid-tier as well,” Bower said.
Bruce Springer, a Lee & Associates senior vice president, said it was unlikely the scenario that led to the construction of Skechers’ massive warehouse in Moreno Valley would repeat itself because that was an unusual situation. Developer Highland Fairview had Skechers lined up as its tenant early in the process. The three warehouses being built don’t have that luxury.
Also, Springer said, the market is still in the process of absorbing lender-owned properties that were given up in foreclosure proceedings, a reminder that the recession is still visible in the Inland area’s rear-view mirror.
“We’re still absorbing REOs, and that concerns me,” Springer said. “There are some great deals to be had. Unfortunately, there’s still blood coming out of the turnip.”
Source: http://www.pe.com/business/business-headlines/20120109-real-estate-more-distribution-activity-likely-in-2012.ece
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